Massachusetts and Montana have separately sued the U.S. Securities and Exchange Commission over its new rules for mini public stock offerings, saying the agency has wrongfully infringed on the states’ regulatory powers.

The new rules governing what are known as Regulation A offerings were approved by the SEC in March. They increase  the funding cap to $50 million from $5 million and preempt state oversight of deals between $20 million and $50 million.

Supporters of the rules contended they would make it easier for small and mid-size companies to raise capital by cutting red tape.  Reg A’s use has declined sharply since the 1990s, with many attributing the trend to high offering costs and the necessity of complying with state “blue sky” laws.

But in court papers filed Friday, Massachusetts and Montana have asked the U.S. Court of Appeals to declare that the SEC violated congressional intent by greatly reducing states’ powers to review Reg A offerings before they are sold to the public.The suits seek a stay on implementation of the rules, which are due to kick in June 9, until the litigation is resolved, Reuters reports.

In announcing the new rules, SEC Chair Mary Jo White said that they “provide an effective, workable path to raising capital that also provides strong investor protections.”

But during the rule-making process, state securities regulators objected to the expansion of Reg A, warning that it would encourage fraud. To ease those concerns, the SEC agreed to require issuers to file their paperwork for public review several weeks before they start selling to investors.

For smaller deals, companies can choose to undergo state-level review, or opt out and face heftier disclosure requirements instead.

“[The] change had to happen, or else Reg A was going to continue to be a dead-letter, never-used alternative,” DJ Paul, a member of the SEC’s advisory committee on small and emerging companies, told The Washington Post.

But in a letter last year to the SEC, top Massachusetts securities regulator William Galvin said the agency should “not sacrifice state investor protections” and that it had no authority to block any deal from state-level review.

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